On November 29, 2023, Beijing time, $MEITUAN-W (03690.HK)$ the financial report for the third quarter of this year will be released. Currently, the market generally predicts that Meituan will achieve revenue of 91.733 billion yuan in Q3, a year-on-year growth of about 20%; eps is 1.45 yuan.

Since the beginning of this year, Meituan's stock price has shown an overall upward trend, rising to a peak of 217 Hong Kong dollars in early October; so far, Meituan's share price has doubled this year.

Looking ahead to this quarter’s performance, the market mainly focuses on: the specific growth of Meituan’s core local business—dining delivery and in-store business; whether the losses in new business have further improved.

Dining delivery and in-store business are of great interest to the market.

Dining delivery and in-store business have always been Meituan's core local business.

In the second quarter of this year, Meituan's core local business division achieved revenue of 60.7 billion yuan, a year-on-year increase of 18.5%; the operating profit of the core local business division increased by 36.8% year-on-year, and the operating profit margin rose by 3.3 percentage points year-on-year, surging by 7.3 percentage points quarter-on-quarter to 25.1%, reaching a new high since 2022. Sealand expects Meituan to achieve revenue of 92.1 billion yuan in Q3, with a year-on-year growth of 20.5%; revenue from core local business is expected to be 68.7 billion yuan, a year-on-year increase of 19%.

Regarding the dining delivery business, Sealand expects Meituan's Q3 dining delivery revenue to grow by 14.6% year-on-year to 45.9 billion yuan, with GTV growing by 11% year-on-year, and the operating profit margin increasing by 2.9 percentage points to 17.8%. It is expected that in Q3, the number of delivery orders will increase by 12% year-on-year to 6.12 billion, showing stable overall growth.

This is mainly due to: ① the platform accelerating its layout in the low stock price meal delivery model, according to LatePost's report, by August 2024, 0.12 billion users had used the meal delivery service, nearly a quarter of Meituan's delivery users; ② continuously deepening the delivery supply chain through new supply models like "brand satellite stores" and "food collection stores"; ③ by August 2024, Meituan delivery achieved a peak of over 90 million orders in a single day through its marketing activity "The First Cup of Milk Tea in Autumn."

In terms of the store business, Sealand expects Meituan's Q3 in-store hotel and travel business revenue to increase by 25% year-on-year to 15.4 billion yuan, and operating profit margin is expected to improve to 35%. Among them, Q3 in-store hotel and travel sector GTV is expected to grow by 35% year-on-year.

The overall CSI China mainland consumer index continues to rebound, according to data released by Meituan for the "Golden Week" of October, nationwide life service in-store consumption increased by 41.2% year-on-year, and daily average consumer spending by tourists grew by 69.6% compared to last year's holiday. Additionally, considering the improved subsidy efficiency driven by membership and continuous optimization of categories, Q3 operating profit of the sector is expected to increase by 37% year-on-year to 5.4 billion yuan.

Moreover, Citigroup pointed out that Meituan's Q3 adjusted EBITDA and adjusted profit under non-international financial reporting standards may exceed market expectations, benefiting from seasonal support in tourism and in-store sales, while dining takeout revenue is expected to meet market expectations.

Nomura indicated that Meituan's takeaway revenue for the third quarter grew by 18% year-on-year, driven by a 19% increase in order volume. However, the average amount per order decreased by 3% year-on-year. In-store revenue increased by 34% year-on-year, and it is expected that the adjusted net income margin will decline by 16 percentage points to 33% year-on-year, influenced by promotional activities.

The loss from new business is expected to further improve.

Meituan's new business sector currently includes Meituan Preferred and Little Elephant Supermarket as its dual cores, while also encompassing Fast Luy, online car-hailing, bike sharing, charging treasure, restaurant management systems, and other.

Meituan's new business revenue in Q2 2024 increased by 28.7% year-on-year to 21.6 billion yuan, achieving the highest growth rate in the past four quarters. Although the new business is still in a loss phase, its loss amount has significantly narrowed by 74.7% year-on-year, and the operating loss margin has also improved, down from 14.8% in the previous quarter to 6.1%.

Analysts believe that the acceleration of growth in Meituan's new business in Q2, along with a significant reduction in loss margin, reflects that Meituan's new business is starting to enter a harvest period. In the current economic environment, achieving high growth year-on-year in new business while improving loss margins will be an important factor for the valuation increase.

Wang Xing stated during Meituan's Q2 conference call that the revenue growth of new businesses is primarily driven by the strong performance of Elephant Supermarket and Fast Donkey. There has been some progress in reducing losses for Meituan Youxuan. To establish a differentiated capability advantage for Meituan Youxuan, various approaches are being implemented to address this market. Since February of this year, efficiency improvement measures have been continuously implemented, leading to ongoing loss reduction.

Regarding other new businesses, Wang Xing mentioned that most achieved better-than-expected efficiency improvements in the first half of this year, maintaining quite healthy growth. The overseas business is still in its early stages, and Meituan will continue to evaluate opportunities in different regions. On September 9, Meituan Keeta began trial operations in Al Khobar, Middle East, marking the first step in international expansion; on October 9, it launched in Riyadh, the capital of Saudi Arabia. Goldman Sachs noted that the Middle East expansion plan has attracted investor attention, including the expansion of Keeta in the Middle East and the expansion plan for Meituan InstaMart warehouses.

In terms of organizational adjustments, Meituan's direction is focused on how to achieve synergy among various business sectors and to what extent this can be realized. In August of this year, Meituan announced an organizational restructuring, merging SaaS, bike sharing, and power bank businesses into 'hardware and software services', while merging Fast Donkey, Elephant, and Youxuan businesses into 'grocery retail', and formally renaming the overseas business to Keeta.

Sealand believes that Meituan Youxuan's business will continue to reduce losses while focusing on high-quality growth. Considering the continuous drive of Elephant Supermarket, Sealand expects new business revenue in Q3 2024 to grow 25% year-on-year to 23.5 billion yuan.

Morgan Stanley: Among China’s internet giants, Meituan has the fastest growth and is expected to reach a target price of 300 Hong Kong dollars next year.

Recently, Morgan Stanley released a report stating that Meituan is the company with the fastest compound annual growth in operating profit among the China internet stocks it covers, maintaining a 'shareholding' rating and a target price of 215 Hong Kong dollars, while raising the most optimistic scenario target price next year to 300 Hong Kong dollars (previously 290 Hong Kong dollars).

Morgan Stanley believes that China's 3D journey (debt, demographic structure, and deflation) remains bumpy after the recent policy shift. Based on the uncertainty of consumer recovery, the firm implemented a bull-bear framework under different policy-driven scenarios to project profit assumptions for 2025 to 2026.

Currently, there is uncertainty in China's consumption outlook; under the baseline scenario, the government is expected to launch 2-3 trillion yuan stimulus plans annually, and Meituan's operating profit compound annual growth rate (CAGR) is expected to reach 35.7% from 2024 to 2026.

If the situation is more optimistic and the government launches a consumption stimulus plan of 10 trillion yuan per year, Meituan's operating profit CAGR from 2024 to 2026 is expected to reach 39.4%; if the government launches a consumption stimulus plan of 1 trillion yuan per year, this figure would be 26.9%. Morgan Stanley believes that Meituan still has growth advantages despite the weak economy. Morgan Stanley currently thinks that Meituan has a better chance of reaching the most bullish target price of 300 Hong Kong dollars next year.

Morgan Stanley expects that in 2025, the valuations of Meituan's business in food delivery, in-store services, hotels and tourism (IHT), and instant retail (Meituan Flash Purchase and Little Elephant Supermarket) will be 110 billion dollars (135 HKD/share), 75 billion dollars (90 HKD/share), and 32 billion dollars (40 HKD/share) respectively, plus a discounted net cash and investments of 28 billion dollars (35 HKD/share), totaling exactly 300 HKD/share. If Meituan's overseas expansion business and Meituan Preferred business achieve results, there is further room for stock price growth.

Editor / jayden